Choice
Utility Utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. There is no unit that can be associated with utility; happiness has no unit, therefore, neither does utility. An example would be the amount of enjoyment one gets from playing Strategery on the iPad, one could substitute the word enjoyment in this case with utility. The measurement of utility is a problem because it is entirely subjective, thus preventing objective accounts of pleasure that people derive. To determine a consumer's utility would require the assumption that the consumers will strive to maximize their utility, which is oftentimes not the case. Indifference curve: plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Example: The graph above shows an example: a person spends ten hours a day either at an amusement park or at the beach. If the person chooses to go to the park for 4 hours; they are then scarcifying four less hours at the beach. At any point on line I, the time will always be equal to 10 hours Quickscope ya Opportunity cost Toney Abbet comes with a price attached to it whether it's good or bad. Opportunity cost is the term used to describe the lost opportunities to the person making the decision making a decision. It is the most highly valued alternative. There really is no such thing as a free lunch. For example, Billy has to choose between having yams or tabouli for lunch. One or the other, not both. If he chooses "tabouli", his opportunity cost is the yams. Likewise, if he chooses yams, his opportunity cost would be the tabouli. If Billy chooses to eat the yams and then the tabouli, he would feel sick, and have less money. The opportunity cost would be feeling good, and having money. If there are multiple choices (for example: Eggs, Cap'n Crunch, or Pancakes), then only the second best option becomes the opportunity cost (so assuming those items were listed in order of increasing tastiness, if you chose to get Crunchatized, your opportunity cost would only be the pancakes.) Scarcity is what happens when there are not enough resources to satisfy people's wants. The world contains finite resources while people have infinite wants, so scarcity will always exist. Scarcity exists because of inefficient distribution of resources. However, even if the world's resources were distributed efficiently, opportunity cost would still exist. Money is a good example of Scarcity, everyone always wants more money no matter how much they have. Opportunity cost is directly related to scarcity. In fact, it is because of scarcity that opportunity cost exists. If there was an infinite supply of everything, decisions wouldn't have to be made because everyone could have anything they wanted. Keep in mind having an opportunity cost may not seem good, but it actually is. Having to choose one thing over another helps run or economy. However, scarcity exists, so people have to make choices. There is an opportunity cost associated with everything, because whenever anyone does something, they lose the opportunity to do something else during that time. For example, right now I am using my time to write this blog, while I could be doing the next best thing (napping). Therefore, napping is the opportunity cost of writing this blog. Opportunity costs are typically measured in happiness. Happiness can be the quality, but most often it is the ability to produce or gain more while losing less. Free and economic goods Free goods A free good is a good that is relatively not as scarce . It is more of a "gift of nature" and also usually supplied without labor and usually without limit. It is not a good that is being given away as a promotion. It is a good that is available in as great a quantity as desired with zero or near zero opportunity cost to society. Some obvious examples would be air or sunlight. They are essential goods but goods that are not scarce and have no opportunity cost (in most cases). However, free goods are not necessarily free. There are two main types of free goods: *Goods that are jointly produced. This is when a good is produced as a by-product of something that is more valuable. An example would be discarded packaging from a factory and then was reused to move an item. *Ideas and works that are produced at zero cost, or almost zero cost. This is like software for a computer. It can be replicated a billion times without using any sources at all. An ideal example would be a rewritable DVD or a CD, or downloadable updates. An example of a "free" good is a "public park". Everyone has access to enjoy themselves at no cost. Public parks aren't really free. They are an example of a non-rivalrous non-excludable good which for those reasons has to be provided by the government with tax money. Public parks are considered to be positive externalities and not a free good. Economic goods Economic goods are goods that are characterized by their scarcity as compared to the demand for them. These goods usually require human effort to produce or obtain. This means any other kind of good, materialistc or not, that is not produced naturally and is finite. Unlike air, you cannot continue to upgrade a computer's internal hardware indefinitely, as the technology may not exist yet in a practical sense, or may be more expensive than you are willing to pay. Production-Possibility Frontier (Production-Possibility Curve) : • Production-Possibility Frontiers, also known as Production-Possibility Curves (PPF or PPC), are curves that show the maximum possible output of one good or service as opposed to another (opportunity cost). This is assuming that scarcity exists, and because there are limited resources on the planet, scarcity exists. The only reason a PPF can be drawn is because of opportunity cost. The curve is the outer boundary that shows the maximum possible output. Production on the inside of curves show inefficient allocation of resources. In a PPF, the opportunity cost of producing one more of one good is the amount lost in the other good. : • Diagrams showing opportunity cost, actual output, and potential output. Point X is acheivable, but inefficient. When a point is inefficient, it indicates that not all the available resources are being used to their maximum potential. Point A, B, and C are all efficient, and this means that they use all the available resources. This diagram shows opportunity cost, as shifting from one point to another results in giving up a certain number of one good or another, and in exchange gaining one more of one good or another. Point Y is unachievable, because it is outside the range of usable resources. Only points on or inside the line are possible. The reason the curve is bowed outwards is because some of the materials that can be used to make wine are not as well suited for making cotton. Because of this, if you specialize 100% in one item or the other, you end up losing total number. The degree to which the curve is bent outwards is based on the degree of substitutes between product A and product B. : : • Diagrams showing economic growth and economic development As growth and development occur, the curve shifts outwards. In this way, point Y becomes attainable. A common example of a PPF is the "Guns and Butter" Model. This model refers to the allocation of government funds during war times, specifically the ratio of monetary funds spent on weaponry (Guns) and quality of life goods for soldiers. However, the more guns that the govronment buys, the less butter they will be able nto buy. this is the trade of shown on the Production Possibilities Frontier. Category:Economic Basics